Downsizing – could less be more?

New research from Halifax suggests that three out of 10 British homeowners have already considered changing their living arrangements to help meet rising costs.

Already feeling the financial effects

While increased costs are affecting people differently across the UK, the research shows that rises to basic household bills are having the greatest impact. Rising energy costs (82%) and grocery bills (82%) were called out as having the greatest effect, closely followed by rising fuel prices (72%). For those with a  mortgage, only one in three (34%) suggested it rising had been the biggest cost of living impact they faced. 

Moving out or moving on

With mortgages or rent often being the largest single household expense, finding ways to reduce them could help those feeling the financial squeeze. The research shows three out of 10 (30%) have already considered options like downsizing, relocating or cohabiting, with almost one in five (17%) saying ‘downsizing’ was something they had considered. 

Those living in Central London were much more likely to have considered downsizing or relocating (32% for both) than the UK average. People in Yorkshire & Humber (12%) were least likely to have thought about downsizing, while those in the North East were least likely to wonder about the prospects of relocation.

Though just four in 100 (4%) had gone as far as actually moving to a smaller home to help meet their increasing costs, the idea was not ruled out by many of the respondents. Of those surveyed, nearly two thirds (60%) said moving to a smaller home to help with the cost of living would be something they might consider. 

Realising the benefits

When thinking about moving to a smaller home, the reduced cost of living (72%) was most commonly named as a benefit of downsizing, with a third (33%) placing it as the number one benefit. 

The financial benefits of downsizing can be realised through releasing equity by selling a larger home, moving to lower monthly mortgage payments, or a combination of both. However, the amount of equity that those surveyed said they might expect to realise, £105,000, could be an underestimate. Based on Halifax’s analysis of house prices of different sized homes, moving to a home one bedroom smaller would, on average, raise £120,820.

The average house price of properties of different sizes varies greatly around the UK’s regions and per bedroom depending on the relative size of the home. Homeowners in London with 5-bedroom homes would on average secure a 4-bedroom home for nearly £370,000 less, also saving around £1,800 per month on mortgage payments (See Editors’ Notes). The ‘per bedroom’ premium falls with smaller properties but even moving from a 3 to 2-bedroom home is over £125,000 less, saving more than £600 each month on mortgage repayments. 

The potential savings from downsizing by a single bedroom are present across all regions of the UK, with the greatest being between 5 and 4 and 4 and 3-bedroom homes. On average the monthly mortgage saving could be £935 or £809, respectively. (See Editors’ Notes for regional tables)

Considerations

On the other side, moving costs were most often cited as one of the main drawbacks of downsizing (39% of people put this in their top 3), along with the lack of space for personal belongings (38%). The distance from family and friends (29%) and being in an unfamiliar area (28%) were also high-ranking concerns about downsizing.

Expectations of how close a smaller home might be also looked to be somewhat ambitious. The average distance people expected to move to find their smaller home was 29 miles. However, any concerns about the remoteness of family and friends might be stretched by the 54-mile average distance moved by those who have already downsized.

Kim Kinnaird, Halifax Mortgages Director, said:

“With many people looking at the options to make their money go further and get the most out of the assets they have, moving to a smaller home is something that many people might consider. 

“For those where it is an option, downsizing can lower mortgage costs that could help with the cost of living or release significant equity for a financial buffer.  But it’s not without its own challenges. The time it can take to move home, distance from friends and family, and the reduced space can all put a question mark over whether the move to a smaller home could work.”